United States
Department of
Agriculture
Forest Service
Pacific Northwest
Research Station
General Technical
Report
PNW-GTR-629
February 2005
Innovation in the Forest
Products Industry: an
Analysis of Companies
in Alaska and Oregon
Abra Hovgaard, Eric Hansen, and Joseph Roos
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multiple use management of the Nation’s forest resources for sustained yields of wood,
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a growing Nation.
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Authors
Abra Hovgaard is a former graduate student and Eric Hansen is associate professor of Forest Products Marketing, Wood Science and Engineering Department,
Oregon State University, Corvallis, OR 97331-5751; Joseph Roos is a research
marketing specialist, U.S. Department of Agriculture, Forest Service, Pacific
Northwest Research Station, Alaska Wood Utilization Research and Development
Center, 204 Siginaka Way, Sitka AK 99835-7316.
Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
Abstract
Hovgaard, Abra; Hansen, Eric; Roos, Joseph. 2005. Innovation in the forest products industry: an analysis of companies in Alaska and Oregon. Gen. Tech.
Rep. PNW-GTR-629. Portland, OR: U.S. Department of Agriculture, Forest
Service, Pacific Northwest Research Station. 53 p.
Because there is a lack of innovation research in the forest products industry
and innovative activities in the industry are not well documented, this study
attempted to fill that void. The objectives of this study were to understand the
process and definition of innovation in the forest products industry, identify the
constraints on innovative activities, identify resources that would improve innovation in forest products companies, compare the innovation environments in Alaska
and Oregon, and provide a benchmark study for innovation in the forest products
industry.
This study revealed that there are several aspects of innovation in the forest
products industry. In addition, the innovation process is a combination of semiformal development stages, trial and error, intuition, and luck. A variety of factors
constrained companies from being more innovative, including government regulations, shipping and labor costs, lack of cash flow, raw material characteristics,
marketing expertise, and raw material supply. There do not appear to be any
resources that would be helpful to forest products companies, at least none that
the interviewed companies could recommend. Offering companies the chance to
exchange ideas and network is the most valuable resource available.
The innovation environments in Alaska and Oregon are somewhat similar yet
different in the marketing tactics employed and the techniques used to obtain market information. Furthermore, the type of innovation projects that each region
focuses on differs, as does the actual process used to develop innovations.
Future research should focus on completing a quantitative component to this
study, developing short courses or 1-day seminars, identifying factors that contribute to innovation success and failure, investigating why the forest products
industry is not innovative by nature, and exploring the external acquisition of
innovation in the forest products industry.
Keywords: Innovation, forest products, marketing, lumber, forest products
marketing.
GENERAL TECHNICAL REPORT PNW-629
Contents
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Introduction
Background Information
Innovation in the Forest Products Industry
Innovation Progress
Methods of Developing Innovative Products
The Secondary Industry in Alaska and Oregon
Marketing and Innovation
Methods
Measuring Innovativeness
Sample
Alaska
Oregon
Data Collection
Data Analysis
Results
Product Focus (Concept 1)
Competitive Advantage (Concept 2)
Customer Focus (Concept 3)
Management (Concept 4)
Organization (Concept 5)
Planning and Information Systems (Concept 6)
Marketing Communications (Concept 7)
Market Information (Concept 8)
Product Planning (Concept 9)
Resources
Innovation Process
Types of Product Development
Overall Innovation Process
Comparing Alaska and Oregon Companies
Definition of Innovation
Product Focus (Concept 1)
Competitive Advantage (Concept 2)
Customer Focus (Concept 3)
Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
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Management (Concept 4)
Organization (Concept 5)
Planning and Information Systems (Concept 6)
Marketing Communications (Concept 7)
Market Information (Concept 8)
Product Planning (Concept 9)
Constraints on Innovation
Limitations
Conclusion
References
Appendix: Previous Research
Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
Introduction
The new millennium brings many challenges to the forest products industry in
Alaska and Oregon. In addition to inherently high transportation and labor costs,
increased globalization has made it more difficult for Alaska species to compete in
com-modity markets. To face these challenges, Alaska forest product firms must
seek new strategies to compete in a global environment. One strategy that has
helped firms compete in the era of globalization is innovation. The purpose of this
explor-atory report is to describe the process of innovation, present case study
anecdotal data as to what makes a successful innovative forest product company,
and show how concepts described in the literature are illustrated by these data.
Background Information
Traditionally, market share has been used as the main measure of company competitiveness, but recently competitiveness has evolved to include product quality,
design, technology, and production efficiency (Porter 1990). Several sources have
shown that new product development (NPD) and other types of innovation are
integral factors for a company to maintain a competitive advantage (Brown and
Eisenhardt 1995, Martin et al. 1991, Pratten 1991, Scarborough and Zimmerer
2000). In a study of 90 smaller companies in the United Kingdom, one of the sources
of competitiveness most often cited was product development (Pratten 1991). Bean
and Radford (2000) recognize that “product development is not really about creating products; it is about competing in the marketplace.”
However, innovation can do more for a company than simply increase its
competitiveness in the marketplace. The development of innovative products and
technologies has several other advantages including providing ways to better meet
consumer needs (Cooper 1996), capitalizing on a strategic market (Thomas 1995),
and realizing the financial rewards of creating successful innovations.
At the 1998 International Panel and Engineered-Wood Technology Exposition,
keynote speaker Warren Easley, Vice President for Technology and Quality at
Louisiana Pacific, insisted that “new, innovative products are badly needed” and
that the key to the future success of forest product manufacturers will be centered
on new products, new processes, and the use of new raw materials (Blackman
1998).
New product
development and
other types of
innovation are
integral factors
for a company
to maintain a
competitive
advantage.
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GENERAL TECHNICAL REPORT PNW-629
Innovation in the Forest Products Industry
Traditionally, the forest products industry has been grouped into two main segments:
primary and secondary. The secondary forest products industry includes millwork,
furniture, cabinets, containers, veneer, flooring, and fixtures manufacturing sectors.
Much of the secondary forest products industry consists of smaller firms that use
labor-intensive operations while incurring high raw material and transportation
costs (Hoff et al. 1997). A large body of research suggests that this type of smaller
company has a competitive advantage in industries with short product life cycles,
heterogeneous consumer demand, and advanced product technologies such as the
wood furniture industry. In addition, smaller firms have the ability to remain flexible in product design, marketing, and production, which aids in their ability to gain
a competitive advantage and leverage innovation (Howard 1990, Pratten 1991,
Rosenfeld 1992, Sommers and Leinbach 1989).
Not only do forest products companies need to remain competitive at home,
there is a strong consensus that suggests the industry will need to invest in technology and product development in order to keep pace with foreign competition.
While U.S. companies continue to lag behind, foreign competitors are investing in
new technologies that are ultimately giving them a greater share in the market and
a larger competitive advantage. The National Research Council states, “The keys
to regaining competitiveness in most U.S. manufacturing industries are quality,
productivity, and responsiveness in bringing new products to the marketplace”
(Canada and Sullivan 1989).
Because there are many activities that may be termed innovative, defining
innovation is a key component to this study. Identifying innovative companies is
essential to obtaining an appropriate sample and assessing the state of innovation
in the industry. This study defines an innovative company as one that excels at one
or more of the three dimensions (product, process, and other), when compared to
others in the industry. Examples of such innovative activities include:
• New finishing techniques
• More efficient processing operations
• Product improvements through line extensions
• New uses of materials
• Changes in management structure and decisionmaking
• Innovative methods to gather market information or sell products
• Innovative means of addressing environmental issues
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Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
An excellent example of innovation in the primary sector of the forest products
industry is the relatively recent switch from the use of old-growth logs to smaller
diameter, second-growth material. This has forced the industry to make process
improvements and offer new products (i.e., composites) based on the changing
resource. Although some of these changes relied on completely new technologies,
most of these adaptations made minor adjustments in existing technologies to
achieve processing improvements and design improvements.
An example of design improvements from the secondary forest products industry
involves the improvements in furniture used in retirement homes and hospitals.
Companies have started developing furniture, especially chairs, that are sturdier,
more resistant to tipping over, and with raised seats to facilitate movement of the
elderly or less mobile patients. These incremental improvements in the product
have provided added benefits to the consumer and given companies an innovative
edge.
Innovation Progress
The forest products industry began by using whole logs and solid sawn lumber.
Over 100 years ago, plywood technology was developed and became accepted in
the marketplace, dramatically changing the forest products industry. Within the last
two decades, newer products and processes have begun taking hold in the market.
A recent (2001) presentation by Scott Leavengood of Oregon State University at
the Forest Sustainability, Assessment, and Certification Conference summarized
these now relatively commonplace products and processes that were once quite
new and innovative:
• Oriented strand board (OSB) and particleboard
• Wood I-joists using laminated veneer lumber flanges and OSB webs
• Parallel-strand lumber
• Laminated-strand lumber
• Medium-density fiberboard
• Glulam beams
• Wood fiber and inorganic (plastic/cement) composites
• Small-log processing and curve sawing
• Computer-aided manufacturing
In addition to
introducing innovative products, the
forest products
industry will remain
competitive in the
industry by implementing unique
management and
marketing arrangements.
In addition to introducing innovative products, the forest products industry
will remain competitive in the industry by implementing innovative experience and
unique management and marketing arrangements.
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GENERAL TECHNICAL REPORT PNW-629
Methods of Developing Innovative Products
Cooper (1996) provides an excellent historical perspective on the evolution of
innovation processes. Cooper characterizes these processes as first-, second-, and
third-generation innovation development processes.
The first-generation innovation process or “phase review process” was developed by the National Aeronautics and Space Administration in the 1960s and was
also used by the U.S. military for weapons development. The process attempted to
break development into discrete phases, each with its own review process. Movement
to and funding for the next phase were contingent on successful completion of the
previous phase. The process was driven mainly by engineers, and marketing people
were not involved in the development process. Drawbacks of this process include:
• It was too narrow (it only dealt with the development phase).
• It was too functional (focused on technical/engineering aspects).
• It was cumbersome and slow.
The second-generation innovation process was termed the “stage-gate model.”
It also had discrete phases with a review phase at the completion of each step.
However, the entire system and the decision points at each phase’s completion
were cross-functional, involving many different departments within the organization. Eventually, marketing and manufacturing personnel were included in the
development process. The process became much more holistic, covering the innovation from idea to market launch rather than focusing solely on development.
This type of development process has been successfully implemented by several
companies including IBM, 3M, and Northern Telecom. This process also has
problems, however, some of which include:
• Projects must wait at each gate until all tasks have been completed.
• Overlapping of stages is not possible (activities are not undertaken
concurrently).
• Projects must go through all gates and stages.
• The process tends to be too bureaucratic.
• The process does not lead to project prioritization and focus.
Finally, Cooper suggests that we are entering the third generation of innovation processes. This newer process emphasizes efficiency in both time and allocation of development resources. Cooper characterizes this process with four
fundamental F’s:
1. Fluidity—the process is adaptable with overlapping stages that increase
development speed.
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Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
2. Fuzzy gates—the process has conditional “go” decisions that are situation
dependent (e.g., projects may pass though gates without having completed
all tasks).
3. Focused—the process takes all projects into consideration and prioritizes in
order to focus resources on “best bets.”
4. Flexible—the process is not a rigid stage-gate system but allows each project
to take its own course through the process.
Certainly, the third-generation process is not the end. The product development
process will continue to change and adapt with changes in the business environment and consumer needs. According to Tomkovick and Miller (2000), “New
product developers now find themselves in an age of change, the likes of which
the world has never known.” The authors offer seven themes focused on the new
product development that will affect the innovation process.
1. New product development is of growing importance to companies and is
often the activity that offers the greatest leveraging of investment.
2. New product development champions must continually encourage the
known foundations of new product success.
3. Companies may benefit by translating innovation and sales growth rates
into more new product development cycles per decade.
4. Continuous product quality improvement protects and builds brand equity
and should be a vital part of new product development contribution to
the firm.
5. Product elimination is an integral part of the innovation process; retention
of poorly selling products can drain scarce resources needed for more successful projects.
6. Fun and optimism are essential and often overlooked ingredients for new
product development success.
7. New product development credibility is built by delivering on promises
made.
Based on these seven themes, the authors conclude that:
• Innovation and product development are becoming increasingly important
in the business world.
• Successful innovations require both process and product champions.
• Product modifications and quality improvements are important components
of product development.
• Product elimination is an often overlooked but essential product development activity.
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GENERAL TECHNICAL REPORT PNW-629
Tomkovick and Miller (2000) predict that the processes of developing products
will continue to undergo changes while the importance of product development to
a company’s success will continue to increase. Although Tomkovich and Miller
focus on product development, the broader innovation environment is also impacted
by these themes. Certainly there must be processes and management/marketing
structures that allow companies to be successful product developers.
The Secondary Industry in Alaska and Oregon
Studies show
the important
role that marketing
plays in product
development.
A recent report by the USDA Forest Service highlights significant changes in the
structure of the Alaska forest products industry and a movement away from the
dominance of primary producers. Part of this is due to the recent closures of the
two major pulp mills in southeast Alaska (Sitka in 1993 and Ketchikan in 1997),
which contributed to a 41-percent decrease in employment in the forest products
sector in this region (Allen et al. 1998). Consequently, Alaskans are turning to
lower paying retail and service sector jobs, which is predicted to slowly erode
wages (Allen et al. 1998).
The closure of these large pulping companies has also resulted in the underuse
of sawmill by-products (chips, lower grade saw logs, and utility-grade logs) that
were typically used in the pulp mill operations. Some researchers predict that this
underutilized resource is the raw material needed for the emergence of a stronger
secondary forest products industry. This resource could provide an opportunity for
small to medium-sized companies to find markets and develop new, value-added
products or processes that would use this resource (Allen et al. 1998, Brooks and
Haynes 1997).
This study is timely for both Alaska and Oregon. Both regions are experiencing recent growth in the secondary forest products industry. Furthermore, the
secondary industry in both regions consists of smaller companies that could prosper
from innovative activities that could help them compete in both the domestic and
international markets.
Marketing and Innovation
Since the late 1960s, researchers have been studying the factors that influence the
failure or success of innovative products. In nearly all of these studies, the importance of marketing planning is apparent. Studies conducted over a period of more
than 30 years show the important role that marketing plays in product development.
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Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
The importance of marketing in product development processes
Study
Findings
Myers and Marquis 1969
Most successes were market-derived (market pull)
ventures rather than technology push (present in only
21 percent of the cases). Understanding user needs and
both internal and external communication are important
factors in product success.
Cooper 1975
Ineffective product marketing and poor market
research are the main causes of product failures.
Hopkins 1980
Inadequate market analysis, product defects, lack of
marketing, high costs, bad timing, and competitive
weakness were the main causes for product failures.
Rothwell 1972,
Rothwell et al. 1974
The most important factors for the success of innovative products are understanding user needs, attention
to marketing and publicity, efficiency of development,
effective use of outside technology and external communication, and the influence of responsible managers.
Cooper 1979
The factors that separated 102 product successes from
93 failures in 102 Canadian firms were a unique and
superior product in the consumers’ eyes, strong market
knowledge (well-researched markets), and technical/
production synergy.
Cooper and
Kleinschmidt 1986
A good fit between the marketing strategy, sales force,
distribution needs of the product, and a firm’s marketing resources and skills is fundamental to product
success.
Hise et al. 1990
A high level of marketing involvement in product
development is more likely to result in greater commercial success for new consumer products than for
new industrial products.
Griffin and Hauser 1996
Marketing plays an important role in product development by providing information on customer needs
and aiding in product positioning decisions.
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GENERAL TECHNICAL REPORT PNW-629
Atuahene-Gima and
Evangelista 2000
If innovative products are to be successful, marketing
and research and development need to play influential
roles in innovative activities.
Bagchi-Sen 2001
Market research is more important for business
development and problem solving in innovative
companies than in non-innovative companies.
Success of new products depends on several marketing components including:
• A market-derived venture
• Effective product marketing
• High level of marketing involvement
• Adequate market research and market analysis
• Sufficient publicity
• Strong market knowledge
• Ample marketing resources and skills
Without a strong and effective marketing framework, the extensive resources,
energy, and time spent on the development of an innovative product will likely be
lost to high failure rates.
Methods
Measuring Innovativeness
The concepts of innovation were explored through a series of case studies of 18
innovative companies in Alaska and Oregon. Personal interviews took place in
Alaska and Oregon during 2001. These interviews produced key phrases, characteristics, and stories that can be used to describe an innovative forest products
company and the innovation process. Furthermore, these interviews could be used
to turn the concepts into variables that can be measured in a future quantitative
survey (not part of this research project).
Sample
Nine innovative forest products companies were chosen from each state because
they excelled in at least one area of innovation: product or process improvement,
new product or process development, or innovation in management or marketing
that represents added value (i.e., added benefits) to the consumer. A company participating in one or more of these activities was termed an “innovative” company
for the purposes of this study.
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Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
Alaska
The identification of innovative Alaska companies took place in three phases
with the help of several professionals and organizations. First, the Alaska Wood
Utilization Research and Development Center (WUC) in Sitka, Alaska, a branch
of the USDA Forest Service Pacific Northwest Research Station, helped to develop
a preliminary list of innovative companies. Collectively, individuals at this center
have been working with Alaska forest products producers for over 30 years and
are consequently very familiar with the industry.
Once a preliminary list was formulated, other Alaska experts evaluated the
list and provided recommendations. This helped to establish commonalities and
obtain the best possible sample. Experts included Alaska Science and Technology
Foundation, Alaska Department of Commerce and Economic Development, Wood
Products Development Service, consultants, and academics.
As a third and final measure, several of the first companies interviewed were
asked to suggest other Alaska companies that they considered to be innovative or
that fit with the study requirements. This process yielded nine innovative companies
(table 1). The company names are purposefully withheld to provide anonymity.
Table 1—Profile of innovative forest products companies studied in Alaska
Sector
Interviewee(s)
Primary
Primary
Secondary
Secondary
Secondary
Secondary
Both
Both
Both primary
and secondary
V.P. corporate development and V.P. manufacturing
Owner/operator
Owners/operators
Owner/operator
Owner/operator
Operator
Owner/operator
Owner/operator
Operator
Oregon
Innovative forest product companies were also selected in Oregon by using the
same criteria. Again, a three-stage approach was implemented starting with the
Northwest Wood Products Association (NWPA). Next, feedback was sought from
other experts including Oregon Economic and Community Development Department, Oregon Forest Industries Council (OFIC), the Pacific Northwest Research
Station, extension agents, academics.
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GENERAL TECHNICAL REPORT PNW-629
As a third and final measure, companies interviewed first were asked to
identify other innovative companies in Oregon. This process yielded another nine
companies (table 2). Again, company names are withheld to provide anonymity.
Table 2—Profile of innovative forest products companies studied in Oregon
Sector
Interviewee(s)
Secondary
Secondary
Secondary
Secondary
Secondary
Secondary
Secondary
Secondary
Both primary
and secondary
President/CEO
Owner/operator
Owner/operator
Vice president/general manager
President
President
Production manager and bookkeeper
Owners/operators
Owners/operators
Data Collection
Owing to the nature of the innovative model of marketing planning, whenever
possible, more than one individual from each company were interviewed. Having
the perspectives of several individuals is ideal, as those most knowledgeable about
strategy and structure may not be the same individuals who have a thorough understanding of the marketing functions. Owing to a variety of constraints, however,
interviewing several people was not always possible. This does not pose a significant problem as many of the companies were small and one individual often served
many functions (e.g., chief executive officer, marketing manager, and product
champion).
This technique has been used previously in innovation research (Griffin and
Page 1996). Table 3 shows the individuals who are likely to be most knowledgeable about each concept in the study.
Key issues with case study data are reliability and consistency across multiple
cases. In an attempt to address these issues and to guide the data collection phase
of the research, a case study protocol was developed as defined by Yin (1994):
• An overview of the case study project (objectives, issues, relevant readings)
• Field procedures (credentials, sources of information, procedural reminders)
• Case study questions (specific questions, table “shells”)
• Guide for the case study report (outline, narrative format, documentation)
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Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
Table 3—Research concepts and individuals most knowledgeable
Level in marketing
planning
Concept
Key individuals
Strategy
Strategy
Structure
Structure
Products
Competitive advantages
Management
Organization
Structure
Function
Function
Function
Planning and info. systems
Marketing communication
Market information
Product planning
Chief executive officer, top management
Chief executive officer, top management
All managers
Top management, marketing manager,
production manager
All managers
Marketing manager, sales manager
Marketing manager, sales manager
Product champions, team leaders,
production manager, project manager
Data Analysis
Data collected through case studies are inherently qualitative and can be both
descriptive and explanatory in nature. For the purposes of this study, the case
studies were used to identify key innovation concepts and characteristics of the
forest products industry. This was accomplished by looking for patterns in the way
that an innovative company was described across the case studies. Yin (1994)
describes this technique as “pattern matching.” The patterns that emerged were key
concepts and ideas used to characterize a typical innovative forest products company.
For example, the case studies revealed commonalities among innovative forest
products companies such as:
• A competent management team that is focused on innovation.
• Proficiency in market research and obtaining market information.
• Organizational structures that encourage innovative activities.
• Adequate innovation resources (expertise, money, risk-taking attitude).
• A product champion (a dynamic and visionary individual).
Results
Forest products companies define innovation in a variety of ways. Nine different
definitions were identified in the interview data. Each of the definitions was supported by at least three companies.
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GENERAL TECHNICAL REPORT PNW-629
Definitions of innovation in forest products companies
Aspect of innovation
Supporting quotations
Way of thinking
“You have problems and you have solutions. You have
to be willing to have a totally open, unstructured mind
to address the problems.”
“Well first of all it had to start with process...a process
of mindset, a process of how we are going to do our
business.”
The only one
“I have to say that we are very innovative...because
nobody else is doing it.”
“Our product is unique, one-of-a-kind, and something
that has never been seen before.”
People
“Everything I read about with innovators and entrepreneurs is that there is something a little bit different.
They are like their own drummer. That’s us.”
“You really want that combination of free spirit,
there are no boundaries and that independent drive to
accomplish tasks without defined limits and without
defined timelines.”
Niche products
and markets
“Trying as best as you can to move from a high volume commodity to more of a niche market...you have
your basic commodity market that keeps you alive and
then you start targeting with special woods, some
small runs of niche market type of products. I think
that’s where the successes are going to be. The commodity keeps you alive and the niche just gives you
that edge.”
“We’ve gotten very good at what we do, but it’s a very
small niche...it’s so small that the big companies aren’t
going to address it...there’s an opportunity for innovative companies, in quality design in the high end.”
Customer oriented
12
“We certainly make innovative stuff when we’re
allowed to by the customers [who say], ‘Well I need
one of these and I want you to design one for me.’”
Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
“I think innovation means that you identify the need
from the customer. You identify problems that your
customers have and you are able to deliver a product
that adds value to their problem...they have an issue
and as an innovator, you can identify the problem and
then you go out and solve it.”
Marketing
“Innovation is more likely to come in with products
that people find that are marketable...I don’t think
Alaska is going to produce a new use for wood. It’s
more a matter of finding a way to market our stuff.”
“You’ve got a market for everything that goes
out...marketing has to be up there at the top of the list
in terms of being capable of not being dependent on a
single product.”
“I think innovation is trying to be successful in
marketing it.”
Process
“We are removed from other people by a certain unique
manufacturing process that works, an innovative
process.”
“Well certainly efficiency in raw material use.”
“We tend to think of machinery as innovation...we’ve
built machines to solve specific needs.”
“To get more recovery out of your existing supply.
Keep up with the technology, basically to get more
fiber out of what you got.”
“I think that one of the things that innovative companies do is they simply take advantage of innovative
processes from other industries that are ahead of their
industry...they go outside their industry and they learn
from and take advantage of things that other industries
do well.”
Product
“We have to take an innovative product and make it
[more] innovative. We have to go to another product
level.”
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GENERAL TECHNICAL REPORT PNW-629
“I know with us innovation is design. That’s how we
try to set ourselves a step ahead and a step apart...we
make things that are just a little different.”
“Being capable of having a diversity of product line to
survive through seasonality and economic cycles.”
“I think an innovative company would be one that
would do everything it could to try to get new acceptance for an old product on a national scale.”
Business Structure
Several interviewees
placed their product
on the commodity
side of the spectrum
and their production
process on the
innovative side.
“That’s another semi-innovative part of this business...
the way we treat our suppliers and customers is as a
partnership as opposed to trying to get the best thing
for the buck right now.”
“So you have this mill that is now owned by an owner
and a nonprofit with the idea that ok, so now we have
the incentive. We can get grants. We can go out there
and try and get more certified lands around us. We’ll
be one of the only mills that is producing stud lumber
that’s Doug fir, certified material. That’s innovation...
how do we structure this thing that’s going out of
business? How do we structure it and partner?
Relationship innovation...get out of the old paradigm
of, you’ve got to do it alone or die.”
A review of the literature and company interviews revealed nine concepts
present in innovative companies: product focus, competitive advantage, customer
focus, management, organization, planning and information systems, marketing
communications, market information, and product planning (a review of the literature is included in app. 1). In addition to these main concepts, the interviews
revealed that cost-efficiency, persistence, ability to survive, and environmental
sensitivity were key characteristics of innovative forest products companies.
Product Focus (Concept 1)
To assess the product focus of innovative companies, interviewees were asked
to place their product on a spectrum with commodity products on one side and
specialized products on the opposite side.1 None of the interviewees placed all
1
In the case of lumber, commodity products include dimensioned lumber such as that used
in housing construction. Specialized products in the case of softwood lumber include shop
and select lumber that is often remanufactured into value-added products.
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Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
aspects of their business on the commodity side. This is expected as our sample should
contain only innovative companies. Interestingly, several interviewees placed their
product on the commodity side of the spectrum and their production process on the
innovative side. One interviewee stated it this way, “From a technological standpoint, there are not many new things that you can do to wood furniture. ...On the
other hand, what we are doing is we’re applying other industries’ technology to our
industry. There are things that we do in our plant that aren’t found in other woodworking plants.” Another interviewee stated it slightly differently when he said, “I
think our [tool handles] fit... towards the commodity, typically. I think the application or how we do it tends to be at the higher [innovative] end.”
Competitive Advantage (Concept 2)
Innovative companies described their competitive advantages in a variety of ways.
At least 3 companies supported each of 10 competitive advantages. This indicates
that innovative companies draw on a variety of competitive advantages to survive
in the forest products industry.
Competitive advantages of innovative forest products companies
Benefit
Supporting quotations
Technology
“We’re hoping that the computer will be a competitive
advantage in the future.”
“We’ve had to automate to stay ahead of the lower
priced competition that has always been out there.
I think that’s probably our strength, the building of
automation to stay price competitive.”
Shortened supply chain
“We install our projects too....we can design it, we
can build it, and we can install it.”
“We only build custom-made cabinets. You have to
come in here with a design and a drawing and we
custom build them. We don’t build anything to inventory and sell to Home Depot so they can put it on
their shelf.”
Customer focus
“You get on the phone and you don’t get ‘Press one to
talk to someone in sales, press two to talk to our shipping department, press three to,’ they call and they get
me. Every time they call they get me. Be attentive,
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GENERAL TECHNICAL REPORT PNW-629
call back, follow through, talk to people. For a lot of
people, that’s it. They want to feel like they know who
they are buying from.”
“I’d have to say public relations, our relationship with
our customers. It’s very one-on-one. It’s not just talking and purchasing. We’re in the cabinet shop talking
to the cabinet shop guy almost on a daily basis.”
Local (mostly an advan“It’s local, and it’s local...it’s the local workmanship,
tage to Alaska companies) it’s the local material.”
“If it’s made in Alaska, they will buy it.”
Material utilization
“Being able to do more with less.”
“We’ve got to create a use that [overseas competition]
is not creating. They’re taking old technology and old
ideas and coming up with cheap labor to put something
to market...but it’s a container. We want to be something that just happens to be shaped like a container.”
Cost reduction
“That includes reducing the cost of labor and reducing
the cost of wood. There are various ways to do that but
you have to get very innovative in reducing your costs
so that you can stay competitive.”
“We buy our raw product cheap. That’s a big plus.”
No competition
“We had to do something that wouldn’t pop up in
Wal-Mart. Our kiln drying process was the first ever
for [our product].”
“How you compete with the big boys is don’t do what
they do, don’t compete with them...do something that
you’re more suited to do.”
Quality
“I built my business on service to the customer,
quality, and attention to detail.”
“The competitive advantage that we have right now
is our quality. Our quality is not gallery but its better
than what you’ll see for a similar price anywhere
else...quality and then its American made, those are the
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Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
two main things that people like to hear from us.”
Outsourcing activities
“We’ve had a few products that we’ve had to outsource to stay competitive. We’ve even had to take
them out of people’s hands making them here. That’s
not an easy, fun decision when your whole mentality
is to make it local.”
“So how do we get innovative and compete in that
market? One of them is we’ve actually decided to
purchase these products from Chileans and Brazilians
...so what we’ve done is essentially walked away from
producing that inside our company and bought it outside...but we will make all the odds and ends, the specialty items that they aren’t good at.”
Marketing
“My competitive edge is I sell direct. I don’t wholesale
out to anybody. I just deal with the end customer.”
[The brand] “puts us in a very, very good position...to
stay competitive and more importantly, keep the Chileans
and the other South Americans from getting a foothold
in our...market.”
In addition to these aspects, some interviewees cited flexibility, adding value
to products, superior material characteristics, and environmental sensitivity as
components of their competitive advantage.
Customer Focus (Concept 3)
Most companies interviewed had a strong focus on the customer. Focusing on the
customer provides a variety of benefits to companies including product improvements, design improvements, repeat purchases, and new product ideas.
Benefits of a customer focus in forest products companies
Benefit
Supporting quotations
Product improvements
“We’re working on trying to put together an order
system where [customers] can actually place their
orders and manage their orders...when they have a
change in the shop, they have to go through 10 people
to get the change to us, which sometimes can be too
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GENERAL TECHNICAL REPORT PNW-629
late. This way we are trying to create a live system
that they can make their updates...and next time we
cut one it will be ready.”
“While I was waiting my turn to talk to the store owner,
a consumer comes raging in and she says, ‘My feeder
that you sold me yesterday, it leaks seed all over the
ground. The birds are eating on the ground and the cat
just got a bird right in front of me...’ So our feeders
don’t spill seed.”
Design improvements
“You come up with a plan, [the customer] might have
a sketch but then you start drawing it out and you put
your input into it...you engineer it, you tweak it this
way and that. You get it to where they want it...almost
every job we get involved in revolves around those
custom spaces.”
“Quite often somebody will call you up on the phone
and you’ll sit there with a pad in hand and they’ll be
rattling off numbers. Well I want a table this size and
I want it to look like this. So you’re sketching it out
right before your eyes. You might even be working on
some numbers or...this kind of wood versus that,
maybe get an idea of [which] wood might be a little
more expensive and/or harder to get.”
Repeat purchases
“We do have a lot of young couples, a lot of people
who have never built. They come in and we spend
some time with them. Then while they’re doing the
project they can call up the office...we’re there for any
questions they have on their project, which you don’t
get anywhere. That has been a really big deal with
us...and they’ll come back.”
“We’re trying to concentrate on repeat areas. We can
get them at birth and high school graduation. So that’s
a very important part of our marketing.”
“Now with our stamp on the back of them, whoever
buys them there, we’ll probably get four or five repeat
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Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
calls from just our name being on the back of them. So
you don’t know where it’s going to end. It will slowly
start mushrooming out.”
New products ideas
“I would say that 99 percent of all new ideas come
from the customers. What happens in a lot of industries, ours included, is that people take credit for it.
They say, I have this wonderful new invention that
I’ve created...I would argue that a customer clued them
in on that somewhere...its highly unusual that somebody creates innovation without a demand.”
“Greenhouses...that came from a client. They said,
‘This is a great building, I could grow something in
this.’ I had somebody else that said, ‘I would love to
have a kids’ playhouse at the top’...That’s how a lot of
the ideas have come.”
“I was at a tradeshow and a lady came up to me and
said, ‘Don’t you have anything that will hold little
knives? Because we sell a million of these little knives
and people want to display them, they collect them.
They have eight sets. They have nowhere to store
them. Can’t you make me something?’ Sure, we can
do that.”
“A customer will come and say, ‘I’ve got a sample that
looks like this...how much will it cost to get something
like that?’ Sometimes we just look at it and say, how
do we do it? Go back and look at what have we done
similar to this before.”
Management (Concept 4)
Interviewees were asked to describe the management structure of their organization
and the role that management plays in the innovation process. Management theories
ranged from a top-down, military mentality to more commonly, an open exchange
of information between all levels in the organization. Although the following form
of management is rare, a retired military officer described his management philosophy in this manner:
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GENERAL TECHNICAL REPORT PNW-629
Everybody in this organization believes in and agrees with my framework,
my thought process, and my set of goals, standards, and objectives. I’m
a retired military officer, 30 years in the Army. I don’t have a problem
getting people to do things the way I want them to do things...But I will
tell you that in 9 years of manufacturing now in three different companies,
it’s not easy getting civilians to do what you want them to do. You don’t
own their hearts, minds, and souls like you do a soldier. And they have
this propensity to ask you questions like, “why?” At times it takes three
or four times. I’m not in that mindset.
Other companies had attempted a team structure with mixed success. One company stated, “There’s a team structure...we’re all in the same boat together kind of
a thing. We all just have different tasks that we have to do.” Another commented,
“We have a general manager. We have team leaders. We have morning leader meetings. Who’s on first, what’s going out, and what’s happening...we try to keep [communication] strong but everything is still just crazy.” The president of a large
softwood manufacturing company had implemented a team structure that eventually
failed. He describes his philosophy of management below:
Our goal was to use these teams to establish plant goals for improvement;
plant goals for productivity and to identify various projects within the
plant that could help them achieve those goals. In that we took people right
off the production line, off the floor, along with management and we went
in and told them, “You guys come up with it and you have to come up with
it with everybody being equal.” The net result was we took the leadership
out of the plant manager’s hands, forced them to spread it out amongst
everybody and try to come up with a consensus and a decision on what we
are going to do. What happened was nothing happened. It takes you four
months to come up with goals. You meet once a month or once a week and
you go through this whole process of trying to educate everybody on the
various aspects of the company, the financial part of how the plant operates
...and four months later you finally come up with some goals. In all reality,
the plant manager, if he’s prudent and does his job right, he can come up
with the goals. There’s no big secret there. If they are good quality goals
that are well communicated, nobody is going to have a problem with it.
Unreasonable goals, then yes, people are going to have a problem with it.
As a good manager and as a good leader you have to recognize [that you]
don’t take leadership out of the organization, you enhance leadership.
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Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
You allow leaders to organize their people rather than taking that leadership out of a person’s hands because when it comes down to it, the guy
running the plant is the one who’s in charge of running the plant. If it goes
belly up, he’s the one that gets fired. You can’t take that out of his hands...
you don’t have to delegate that down to the smallest, lowest level.
Even if a formal team structure is not always a successful management structure, Open communication between all levels in the organization was beneficial for
nearly all of the companies interviewed. However, companies may lack the ability
to structure that communication and derive meaningful opportunities from the
exchange. An interviewee commented, “We have a lot of people that at times work
really well together and come up with really free-flowing type ideas. Then there
are other times where those ideas are in conflict. We don’t have a real good way to
have competition, to find a clear winner.” Another interviewee summarized their
difficulties in the following manner, “The ideas are there [from line workers],
maybe some people have the capability to do it but they’re so busy doing other
things that...we never get to that. I know it’s our general desire to make the people
grow, help them grow in capabilities but we don’t always invest in training or the
time to get them there.”
Open communication
between all levels in
the organization was
beneficial for nearly
all of the companies
interviewed.
Organization (Concept 5)
Linked with a company’s management structure is the organizational culture of
an innovative company. Many of the companies interviewed were operated and
owned by one individual or a husband and wife team. This is the nature of smaller
companies in this industry and especially in Alaska. In these companies, an individual becomes responsible for the entire organization.
When the company is this small, it does not seem appropriate to discuss the
organizational culture, because it rests solely on the mindset and activities of one
or two people. In the larger companies interviewed (more than five employees) a
variety of working environments existed. The organizational culture of these companies displays one or more of three features: family atmosphere, employee
focused, reception to change.
The organizational culture of forest products companies
Cultural aspect
Supporting quotations
Family
“We’re always helping each other out. We had a cabin
raising for one of our employees, one of our guys who
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GENERAL TECHNICAL REPORT PNW-629
is putting up a place...We’re going on a company fishing [trip]...we’re leaving on Thursday.”
Employee focused
“You have to listen to your employees. They’re the
ones out there. We all have open-door policies.”
“You want people to do a quality job and increase
production and quality and everything else. You cannot
let them perceive that they are going to work themselves out of a job. So what I tell them is this: I want
you to work yourself out of a job, and I promise you
that I’ll find you a better job. I’ll create a job for you.”
“So we empowered every employee in this plant to
pull the chain and stop the plant. They see a mistake or
an error or a problem, stop. Everybody in this building
walks over to where their problem is...we solve that
problem...get it put in process, solid stone procedure...
then it doesn’t get [further along in the manufacturing
process]. Worst of all, it doesn’t get out the door to a
customer...every employee is empowered to stop the
plant.”
Receptive to change
“Over the last 20 years or 15 years we’ve gone from
100 people to 1,200 people, we’ve essentially built a
company facility. We’ve essentially engineered and
built almost every component in the company except
for the primary equipment...everything else we built
ourselves. So what you get is an extremely aggressive
can-do attitude...people are not at all afraid to change
as compared to most companies...so as a culture it’s
very easy to change what we are doing.”
Planning and Information Systems (Concept 6)
Although present in the literature, as a key concept of innovative firms, once the
interview process began, it became apparent that this concept was not relevant for
smaller forest products companies. Because only one of the companies interviewed
performed any formal market research (see “Market Information”), most companies
would have no way of incorporating those data into product planning or information
22
Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
systems. Consequently, this concept was dropped during the analysis stage of the
research.
Marketing Communications (Concept 7)
Within the marketing communications concept are the pricing of new products,
outsourcing activities, marketing tools, and marketing tactics used by innovative
forest products companies.
Pricing new products —
For nearly all of the companies interviewed, marketing is a significant challenge.
In particular, many innovative companies expressed difficulty in pricing new and
even existing products. One interviewee stated,
Keeping updated with all the prices is always a challenge. When we first
started doing this, we did not price these accurately...we’ve got the wages
and then you still have to make something for all the equipment that’s
breaking down, the trucks that are delivering it. So it’s a hard call...we are
still trying to figure out if we are at the correct amount. I bet out of all my
challenges, pricing is my biggest challenge.
In pricing new products, companies employed various strategies:
“I could not come out with a product introduction and slap a 30-percent
price increase on it. Nobody would even listen to us...so what we did sell
was very low margin. I didn’t raise the price to pass on the cost of the
materials.”
“I look at what things cost, what could go wrong, and what the fixed costs are.”
“Certainly I went out and got all my competition’s price lists...go to the floor
ing magazines or the home magazines and in the back where they have all the
lists of the people who sell flooring, just check off those boxes and have them
send you all the literature that they’ve got...and certainly you have to know
what your costs of production are. I’ve found that a lot of manufacturers don’t.”
[Paraphrased] Pricing of newer products is paired with that of the competition.
Outsourcing—
A portion of the interviewed companies have decided to outsource their marketing
to larger firms with more marketing expertise. About one-half of the companies
interviewed were using this approach to marketing:
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GENERAL TECHNICAL REPORT PNW-629
“We’re working with an outfit down in Oregon...we’re starting in veneer,
not knowing a whole lot about it. We wanted to concentrate on production,
efficiencies, and recoveries. So we went with those guys for a few years to
let them do the marketing. Because a new guy, with the volume that we
expect to produce is not going to say ‘OK, here we are, buy our wood.’ So
they’ve been buying it...it’s been a very, very good relationship. They said,
‘We’ll consume it internally until you can get on your feet and we’re going
to start marketing for you.’ So they do our marketing.”
“We’re a little bit short on marketing expertise or experience like that. On
the main stuff, we went with one of the guys who works for [company]...
so we engaged his help to market the stuff that went out of here.”
“How do we get it out of state? How do we get it into other people’s hands?
Pretty difficult. We’re not going to do a big mass mailing. The easiest way is
to get under somebody’s already established marketing program and that’s
what we hope to do with [company].”
“We have a company up in Seattle that sells a lot of our veneers...We’ve
dealt with a company in California for years on firewood.”
“Then [company] stepped in and said ‘OK, you guys really aren’t good
marketers. We’re the better marketers so we’ll take this from you and we’ll
do it from here.’”
Marketing tools—
Innovative forest products companies that do not outsource their marketing
activities use a variety of tools to promote their products.
Marketing tools of forest products companies
Marketing tool
Supporting quotations
Displays
“Then they also had a display in their entryway and so
they had our [product] also on that display, and we got
quite a bit of inquiries from that point of view.”
“He said, ‘You might want to make a display like this
and show the wainscot and have a cabinet and a piece
of base and have some trim in the corner. Maybe have
a little window and some wallpaper.’ You know we
went through the whole marketing deal to try and grab
people.”
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Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
“It’s important to have things displayed correctly and
visible in retail stores.”
Phone book
“When you think about your advertising in the phone
book, and it’s mostly outlay of cash to deal with, it’s
incredible. But we do get calls from the phone book.
It is a payback.”
Newspaper
“Newspaper was our initial [marketing tool] and still
we are in the newspaper every day, all day long. We
have a newspaper contract. We do larger ads at certain
times, building times.”
“A lot of people have really liked that newspaper
article.”
Word of mouth
“We get a lot of word of mouth...we send a thank
you out to every client after they are done with their
project, their storage barn or their garage. That’s really
important because...the word of mouth is how we have
grown.”
“Ninety percent of our business is word of mouth.”
“It’s referral. It’s huge...we do a lot of data collection...
we know that 87 percent of our business is referral.”
“Most business is word of mouth.”
Shows
“We went to home shows, wholesale show...we went
to the holiday marketplace. So that’s how we started
out showing people what we were selling. We went to
the sportsmen’s show...I tried to stay away from...
bazaars because it’s all retail and I wanted to stay in
the wholesale end of it.”
“So primarily we sell through gourmet products...the
nice thing about the gourmet products as a wholesale
show is it’s not just that you meet buyers, but you
meet other manufacturers. The networking between
other manufacturers is tremendous.”
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GENERAL TECHNICAL REPORT PNW-629
Internet
“I did the Web page when we first started...It’s been
very successful. I figure 70 percent of our clients have
been to our Web page...they’ve fought it out between
significant others on what size, what price, everything
before I get them.”
“My only marketing tool of any significance is the
Web site.”
The companies
interviewed often
pursued segmentation or differentiation
in their marketing
tactics.
“I sell directly off my Web site as a retailer. But it’s
not significant. It’s maybe one or two orders a month...
I haven’t really done much with the Web site and
with marketing it.”
“We hoped that the Internet site would be functional
enough and we were wrong...Internet sites are just like
anything. It works, but if you’re not fully committed to
it, you get no results.”
A few forest products companies have tried television ads, radio announcements, free promotional products, door-to-door selling, cold calls, and magazine
ads, although these tools were in the minority.
Marketing tactics—
The companies interviewed were oftentimes pursuing one of two tactics in marketing their innovative products: segmentation or differentiation. Segmenting serves
to divide a market into smaller niches with specific needs. A company using this
tactic targets its products to satisfy a niche market need. Differentiation works to
separate or differentiate a company’s product from that of the competition. In theory,
this difference enhances the value of the product in the customer’s mind.
Marketing tactics of forest products companies
Tactic
Supporting quotations
Segmentation
26
“We checked into doing ads at the theatre too. You
know, aimed at certain types of movies, certain types
of people who are going to buy our product. We certainly have a pretty good idea [of who will buy our
products]...they have to be able to afford your product.
Middle-income to high-income bracket is where our
product usually goes.”
Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
“It was an opportunity to set up an either/or, which is
always nice in marketing. Knotty, displayed, less
money. Clear, functional, more money.”
“You think of yourself as being the customer and
you’re not...It’s taken me a long time to realize that
I’m not who I’m targeting. I’m targeting the guys who
work for Bill Gates. I’m targeting people that have a
lot more zeros after their bank account number.”
“Well let’s talk about target markets. There’s the distributor, there’s the flooring retailer, and there’s the
architect/interior designer market, and the homeowner.
Each one kind of requires a different approach...but
start with one market category, learn it well, do it well,
know the marketing tools to really be successful there,
and then expand once we have success instead of trying to diversify.”
“The window companies are redesigning their entire
product line with the idea of creating...their goal is to
produce a more segmented marketing approach and try
and come in with some very good price pointed windows on the bottom end of the market with the effort
to compete against the vinyl window.”
Differentiation
“The transition for marketing for me was...where I
figured out that I could do them as a kit.”
“One of my ideas...to take [the furniture] further, is to
put tags on it. Give a description of the piece and the
harvesting and that....Another thing I wanted to do was
to scoop out an area and stamp our name on it with a
logo on it somewhere. ‘Cause it comes from Fairbanks,
Alaska, and I think people would like that.”
“We came up with a marketing plan to... distinguish
our [product] as different from everybody else’s...
We’ve focused very hard on explaining the fine points
of [our product], the difference...explaining essentially
why it works to the benefit of our customers...I think
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GENERAL TECHNICAL REPORT PNW-629
we’ve successfully created... a very recognizable brand
that is definitely unique in the market”
“Our marketing concept is build the very best product
and then present it and promote the fact that it’s the
best product. But it has to genuinely be the best product...you have to create the best design, the best product, the best function...the whole marketing concept is,
I think, misleading for a lot of people....You find a
need and you address it and you solve it. That’s what
innovation is.”
“We have fairly unique stuff and we’re not trying to
sell to the person who is looking for a #2 red oak...
what we try and do is position ourselves as the provider
of fairly unique floorings so we’re not going to compete price-wise with that lower grade common floor.”
Market Information (Concept 8)
The majority of companies interviewed had no formal marketing research efforts.
As with marketing, there is some evidence to suggest that companies may outsource
their marketing research activities. Of those who attempt marketing research,
searching the Internet, magazines, and books; asking employees; attending conferences; conducting surveys; making field visits; and networking with other manufacturers are among the methods that companies may choose. Only one company
of the 18 interviewed had formal marketing research techniques. The president of
that company stated, “It’s so important for a company to know who their customer
is and to know as much about the customer as possible. So we do annual surveys
of our customers... to find out [about] demographics and design tastes.”
When asked why marketing research is not attempted, companies most commonly cited lack of time and money.
Product Planning (Concept 9)
Product planning includes three topics: drivers of innovation, resources helpful in
planning innovations, and the stages of the innovation process.
Drivers of Innovation
The drivers of innovative activities in interviewed companies can be easily
split into two categories: external and internal drivers. A list of the external drivers
of innovation identified in the interviews follows.
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Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
External drivers of innovation in forest products companies
External drivers
Supporting quotations
Environmental pressures
“The pressures from a lot of outside interest [and]
environmental changes, everything else was sort of
working on the industry.”
Governmental pressures
“The government people have been talking about
value-added for a number of years...so that’s why we
decided to do something to it.”
Customer pressures
“Probably our relationship with our customers...
working together you find better ways to do things.”
“So if you look at innovation, what drives innovation?
To a certain extent, our customers are driving the need
from innovation on the distribution side because of
cost. So really the customer is trying to pull that innovation through the process so we can get continued
cost reduction.”
Competitive pressures
“Innovation really is driven, a lot of times, by crisis
competitiveness. Where if you have one company, even
if they’re very good, they may not be competitive unless
they’re forced to....I can’t think of any examples where
innovation has happened in a void. It’s always happened in a cooker with a variety of people.”
“But very, very stiff competition that way...in part due
to our own mistakes in thinking that we’ve got it all
down. We’re the number one supplier and nobody else
can bust into us. That, oh yeah, we did have to improve
our quality and, oh yeah, we did have to improve our
delivery, and, oh yeah, we had to make better machines...
that’s part of the external push to change how we do
things.”
There are also significant internal drivers that put pressure on forest products
companies to innovate. The two main internal drivers are employees and company
needs.
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GENERAL TECHNICAL REPORT PNW-629
Internal drivers of innovation in forest product companies
Internal drivers
Supporting quotations
Employees
“All of our maintenance people, they come up with
lots of ideas and you just have to work that one. That’s
the advantage of a small company. You don’t get
locked into that corporate structure.”
“There’s probably more internal innovation...the
requirements, quality wise, that we’ve had to go
through have required a lot of innovative thinking,
innovative processes and stuff like that. But even when
things were fairly stable as far as the product that we
were making at that time, there was a lot of internal
pressure to change, to do something different, to do
something better. So I think there’s a strong internal
need to change.”
Company needs
“When you look at what drives [innovation, it] was not
so much the customer’s desire, it was our need to sell
wood....We had to push this wood into the market. We
had to find a market and we had to find a way to get
the market to accept it.”
Resources
In general, companies could not recommend many resources that were helpful in
planning innovative projects. Several companies mentioned the local chamber of
commerce and builders and manufacturers associations as useful for networking
with other manufacturers and a way to meet local suppliers. One company mentioned a formal seminar that was helpful in marketing products to Japan.
One manufacturer in Oregon commented that a product champion or visionary
individual is an essential resource in any company. He says, “You find that the
company was started by somebody who really loved that product and just had a
tremendous passion. I think that’s a requirement.”
Innovation Process
Most interview discussions focused on the innovation process. Overall, the companies interviewed did not have a formal innovation process; there was no manual
or official company policy on this topic. Although the process is often influenced
30
Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
by company strengths and skills, gut feeling, being in the right place at the right
time, luck, and accidents, there are identifiable stages to the innovation process.
These stages are not completed in any particular order. Instead, forest products
companies use a tailor-made approach specific to their company’s needs. Rather
than going through all stages, the interviews showed that forest products companies
tend to pick and choose an innovation process based on their unique needs.
Stages of the innovation process in forest products companies
Stage of
innovation process
Supporting quotations
Idea generation
“The process: how we can load things better, how we
can get it out better, how we can make movement...
keeping equipment repaired. Keeping an equipment log
of who’s done what to what. But most of our products
have developed because we’ve thought about it.”
“Probably 98 percent of the product ideas come from
my head, although a few originate from customers.”
[Paraphrased] At the start of the NPD process we have
a brainstorming session with employees, board of
directors, customers, and salespeople to generate new
ideas.
“Anything that comes down the pipe...that’s something
within our realm of doing without tipping over the
cart.”
“We’ve created things by accident but those things
came as the result of a lot of hard work and the typical
capitalistic drive. It didn’t come about wondering.”
Screening
“The cuteness factor...any building won’t do. It’s got
to be cute and well built.”
[Paraphrased] All products go through a design check
where we question its feasibility and its manufacturability.
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GENERAL TECHNICAL REPORT PNW-629
“I think more than anything...the design of the product
is determined by the machinery. You want to make it
efficiently. You want to make it as cheaply as possible.
So we develop everything so that it can be created by
the router.”
Design
“So for the last year and a half there’s been a significant R&D effort and design effort to put a brand new
window on the market. [Our customer] in a lot of ways
drives much of the process through product specs,
product lines, at least initially. Then we come back in
with offering various engineered products and various
changes to patterns to reduce the amount of wood and
keep the part within the standards of our industry...and
we also introduced LVL into the window, which they
hadn’t integrated before.”
“I played around with different assembly techniques,
different sized roofs, and different body sizes, and different length sizes, and then different types of roofs.”
Samples/prototypes
“Sometimes we’ll make a prototype. With the furniture
we make prototypes of pieces.”
Trial and error/testing
“We sent some [samples] down with their local rep
to a regional meeting. It was one of these last-minute
things and he came back very positive.”
“I drilled 100 [products]. I tried drying them in the
microwave, and I tried putting in cat litter so it would
pull the moisture out. I tried doing it in the oven, and
I tried polyethylene glycol...it’s supposed to keep
wood from cracking...that didn’t work. I tried every
experiment I could do.”
“We jump up and down on [the furniture] to see how
much of a load they can carry at the joints. And so you
find out...that’s going to fail and we don’t want to deal
with that. We want it to change it around.”
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Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
“A lot of trial and error, lots of trial and error...I
revamped and designed a bit of my own so I can
interchange lathes.”
“We did it by field testing.”
“[Wheatboard] repels water 100 percent better than
particleboard because the straw itself has a flaxen
cover on the outside. Then we put the plastic polymer
in there and it just repels water. We floated it in a goldfish pond for a month and it didn’t sink. Particleboard
was at the bottom of the goldfish pond the next morning. And the MDF was like oatmeal and mush and
sunk two days later.”
Customer involvement
“Before we do it we’ll draw up a real shop drawing
or a plane drawing and fax it to [the customers] and
[they] have to approve it. Or they’ll say, ‘Well that
sounds OK but I want this, this, and this done.’ So
then you sit down and you really start drawing it and
you incorporate all those different changes. You just
go through that process with a customer.”
“We did it by...talking with consumers and storeowners.”
“Usually what happens is the customer comes to me
and says, ‘I need a such and such.’ Then I say to [my
husband], ‘I need a such and such, make me one.’
Then he’ll design what he likes. Then I put in my two
cents and we end up with a finished product.”
“Ninety percent of the time what we are making satisfies [the customer’s] needs. It’s the 10 percent of the
time, which is the leading edge of innovation, where
they need something that we don’t have or they can’t
find. At that point, we have to greet them, we have to
find something in common and then we have to say,
‘Well what was it that you are looking for’...you
deliver a product that satisfies a problem.”
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GENERAL TECHNICAL REPORT PNW-629
Employee involvement
“[Our employees] keep saying, ‘What if we could?”
“We had one of our employees take the slab that we
cut out of the middle, which is part of the heartwood...
and he takes it and makes some matching spoon and
fork sets. So we buy those back from him. We supply
the wood, he supplies the labor, and we buy those
products back...I think we maintain a supplier-customer
relationship as well as an employee-employer relationship.”
“One of our employees...he’s a very articulate artist.
He’s one of our cutters...and this guy is extremely
talented, irritatingly talented. He says he puts on his
headset and when the classical music is over with, he
happens just to be finished...so again, an employee
starting something...so henceforth comes the [product].”
Plant layout
“Basically they came in with a crew. They went
through the plant and they timed everybody...they
made a map of the plant layout...we came up with a
better design for all of the equipment...moved all the
equipment around, set it up, moved the duct system,
all the electrical system.”
[Paraphrased] We have a separate building for developing new products so that we don’t have to stop production in the main building during the design phase.
“One of the things that I, as a manufacturing designer
[do is] I go into their businesses and say ‘OK, where
can we streamline? What can we do here?” Sometimes
its just lining up so you’re not carrying wood from one
place to another place...setting up your equipment in a
fashion that allows the wood to just flow through...
Little things that I think most larger manufacturers do
anyway but bringing that down to a smaller scale.”
Marketing
34
“This is cute...and everybody says ‘Oh, ah, isn’t that
cute’...who would buy this? Well grandparents like to
visit their kids and gosh wouldn’t they like to get the
Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
kids something before they left? Well grandma and
grandpa probably have more money than the folks that
have a couple of kids at that age...so that would be our
market probably, grandma and grandpa. How would
we display it? Everything kind of goes [on display at]
the road, then it goes on the Web site.”
Types of Product Development
Product development efforts in innovative forest products companies were usually
product improvements or line extensions. On occasion, a new product was developed, and in one company, a rapid product development process was undertaken
Product development
efforts were most
often product
improvements or
line extensions.
Types of product development in forest products companies
Development type
Supporting quotations
Product improvement
“The first hot tub, the original one was crude in
comparison. A lot of different parts of it have been
refined.”
“Every client comes in and they’ve got their own
needs, wants, and desires for the look of their building...we do two sizes of trusses for the garages and
the cabins. We have an engineered stamp. If you have
every size, you can’t do that...we can keep a standardsized look design with a couple odds and ends changed
...the basic design, that’s where we can produce it at
a really fair rate.”
“Part of it is just better equipment in the shop
and...making them dependable enough...So I had to
make the fit up that much more accurate and just
accuracy mainly on the whole thing.”
Line extension
“We ended up with a third product. Most people would
call it a second, sort of a throw away [product]. But
out of that we developed our bird feeder...and I would
venture to say this is probably the only place where
you’ll find that type of bird feeder. We used to sell
them for $12 or $15 apiece and just happy to get that.
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GENERAL TECHNICAL REPORT PNW-629
But by going back and putting a little bit more work
into the [product], putting a brand on it and getting it
to where it really looked better and was shaped better,
we were able to generate three different sizes.”
“I was trying to create different price points and
more products out of the same parts...there are about
10 different lengths that we cut, and I bet I’ve got 80
different products.”
“You have to have a line. You have to have enough to
show them. If you show them 12 items then they’ll be
excited and they will pick out the 3 they like best. If
you show them two items, they’ll say, ‘Well that’s
nice’ and walk off.”
New product development “Another product I want to expand into is predrilled
kits where they can use that electric, cordless screwdriver, like a flashlight. Real easy to hold, two hands,
push the button, the screw goes in. And this 3-year old
girl says, ‘I can build a bird feeder.’...They’ll have a
totally different attitude the rest of their life. It’s true.
So those are the things that we can make money at
doing.”
Rapid product
development
So a week before the show we designed the [product]...we did all of those in like the week before the
show. It’s like quick samples, quick get them in the
box, and quick get it to the show. It was great. We
got a tremendous response.”
Overall Innovation Process
Two interviewees summarized their innovation process in a paragraph or less.
They provide good examples of the innovation process in forest products companies.
The first is an example of a product development process.
We boil it down to a five-step process and it happens both at a retail level
and it happens on a national level...the first step is, you have to genuinely
greet someone. You have to be able to greet the customer at whatever level.
The second step is the one that is most lacking in industry...you have to have
something in common with that person...maybe you went to the same college,
36
Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
maybe you’re both Scandinavian, maybe you’re both football players, maybe
you both like kayaking, but that’s a required step in the innovation process.
You have to have something in common with that person. And the reason is...
if you don’t have anything in common with that person, then the customer or
the end-user won’t let you go to the next [third] step, which is asking questions
to find out, to understand the need. The fourth level is addressing that need. Of
course the fifth is the application of it.
The second is an example of a process development process.
There seems to be a certain series of steps that everything goes through.
There’s the concept phase...how [will] it remove material? How is it going
to shape the basic handle? What is it going to do...then there’s a design
phase. Actually how do you build [it]...how do you put the steel and components and that kind of stuff together to do that, the concept. And then
there’s the fabrication of the machine to put that design together, to put it
into real time. Then we test it. We’re starting to debug it, and this machine
will have a lot of debugging to do. Then there’s basically production testing
and production. Maintenance...we hardly ever design our machines with
maintenance in mind...After maintenance comes the end of the life cycle
on that machine. So phase it out and get something else.
Comparing Alaska and Oregon Companies
Oregon companies
tended to define
innovation in terms
of the process
whereas Alaska
producers were
more focused on
the product.
Definition of Innovation
In general, companies in Alaska and Oregon have similar ways of defining an
innovative forest products company. However, there were two subtle differences.
First, Oregon companies tended to define innovation in terms of the process
whereas Alaska producers were more focused on the product. Secondly, several
Oregon companies felt that unique business arrangements and structures could be
termed innovative in the forest products industry. Furthermore, two Oregon producers identified cost-efficiency as an innovative characteristic. Neither of these
characteristics was used by Alaska companies to define an innovative forest
products company.
Product Focus (Concept 1)
There does not appear to be any distinct difference in whether Alaska or Oregon
companies focus on commodity or specialized products. Both regions seem to have
a mix of commodity and specialized products in their product lines.
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GENERAL TECHNICAL REPORT PNW-629
Competitive Advantage (Concept 2)
Customers are
important to the
innovation
process.
Alaska companies cited flexibility, local resources and workmanship, and efficient
material utilization as key competitive advantages, whereas Oregon companies
mentioned shorter supply chains, reduced costs, and unique approaches to marketing. Both regions make use of technology, focusing on customers, quality, and outsourcing of activities to gain a competitive advantage.
Customer Focus (Concept 3)
Customers are important to the innovation process. However, Alaska was different
in that companies used customer suggestions for design improvements and to personalize the product. In addition, Alaska companies focused on customers in hopes
of yielding repeat purchases. On the other hand, Oregon companies more often
used customer feedback to improve existing products. In addition, Oregon companies were more likely to get new product ideas from customers.
Management (Concept 4)
As mentioned previously, most of the companies interviewed did not have any
formal management structures in place. However, Oregon was more likely to have
a more organized system in place. This is probably due to company size rather
than regional differences; the companies interviewed in Oregon were slightly larger
than those in Alaska. Several companies in Oregon and the largest company interviewed in Alaska had experimented with different management structures and
delegating greater responsibility farther down in the organization. Overall, the
smaller companies (1 or 2 employees) in Alaska and Oregon were managed similarly, whereas the somewhat larger companies (5 to 50 employees) were managed
differently from the small, although similarly across regions.
Organization (Concept 5)
Of those companies interviewed, there did not appear to be significant differences
in the organizational cultures of Alaska and Oregon companies.
Planning and Information Systems (Concept 6)
As mentioned earlier, this concept was eliminated once the research began because
it was irrelevant for the companies interviewed.
38
Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
Marketing Communications (Concept 7)
The pricing of new and existing products posed significant challenges in both
regions although Alaska companies struggled with it a bit more. This probably is
due to the remoteness and lack of resources available to most Alaska companies.
For example, it would be difficult for an Alaska company to obtain a competitor’s
price list when there may not be another producer in Alaska. If that were the case,
it would be impossible for that company to pair its pricing with a company in the
Lower 48 States because the cost structure is drastically different (e.g., shipping,
labor, and materials).
Although the companies interviewed in both regions used a variety of marketing tactics, the Alaska producers use displays, phone books, newspaper ads, and
shows more often than Oregon producers. Most companies interviewed claimed
that word-of-mouth advertising is one of the more important means of obtaining
new customers. Furthermore, there are companies in both regions that use a mix
of segmenting and differentiation marketing tactics.
Market Information (Concept 8)
Although market research activities are limited in both regions, some companies
choose to conduct more informal types of market research. Alaska companies that
attempt to informally gather information more commonly used the Internet, employees,
field visits with other manufacturers, magazines, books, and conferences. On the
other hand, one Oregon company focused on formal customer surveys, and several
others outsourced market research activities to partner companies, suppliers, or customers. Companies in both Alaska and Oregon relied on conversations with fellow
manufacturers (networking) as an informal means of obtaining market information.
Product Planning (Concept 9)
The factors that drive innovation differ from region to region. In terms of external
forces, Alaska is more driven by environmental pressures and government regulations whereas Oregon companies are more influenced by customer pressures and
competitive forces. In terms of internal drivers, both receive pressure from employees,
but only Oregon companies indicated that internal company needs drive innovation. In general, among the companies interviewed, the innovative pressure is more
external in Alaska and more internal in Oregon.
There are no recognizable differences in the resources that were used to plan
innovative projects. Both regions seemed to draw the most benefit from networking with other forest products companies.
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GENERAL TECHNICAL REPORT PNW-629
There are differences in the paths that the interviewed companies take through
the innovation process. In particular, the screening stage seems to be implemented
more often by the Oregon companies. In addition, the Alaska companies were more
likely to make samples and prototypes of innovative products. This is probably
because most innovative activities in the Alaska companies were focused on products. Oftentimes it is not feasible to make samples of the process type innovations
that were more common in the Oregon companies. Although the interviewed companies in both regions use customer feedback and attempt to include customers in
the innovation process, this occurred more often in the Oregon companies. Again,
this likely is due to the remoteness of many companies in Alaska. Of those interviewed, Alaska employees were more involved in their companies. This is probably
because of the smaller size and the more family-oriented work environment of the
Alaska companies interviewed. Oregon companies were more concerned about
plant layout and material flow considerations than were the Alaska companies.
This is expected as the innovative activities in Oregon are more process oriented.
Of the types of innovations that companies undertook, Alaska companies tended
to focus more on product improvements whereas Oregon companies concentrated
efforts on product line extensions or new product development.
Constraints on Innovation
A wide variety of internal and external factors constrain forest products companies
from pursuing innovative activities. The most commonly cited problems are listed
below.
Constraints on innovative activities for forest products companies
Constraint
Supporting quotations
Government regulations
“The Undersecretary of Agriculture just arbitrarily
cut 100 million board feet per year off the allowable
cut with a stroke of a pen, no due process, nothing.
He just chopped it...he said the market demand wasn’t
there...he just assumed...so after $13 million and 8 to
10 years of due process, he just [cut it with] a stroke
of the pen.”
“Probably the biggest constraint to us right now, the
growing of our business substantially, is the Canadian
tariffs and antidumping they just imposed. A significant issue for [us]...we could have easily added
40
Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
another $20 million to our business without it. But
with it, it all but eliminated some options we had for
growing our business.”
Shipping and labor
(mostly in the Alaska
companies)
“Shipping and labor, I would say. That I-5 corridor, its
pretty tough to compete. Those guys down there with
lower wages and they ship out by truck...we ship by
bargeload or shipload.”
“It’s one of the more critical parts of this business,
skilled personnel. We’ve hired a lot of people here that
talk a big story and they come in here and they don’t
know as much as they claim to know.”
“I went through 50 people last year...keeping them is
tough...the government jobs pay $38.00 per hour for a
carpenter. I can’t compete with $38.00 per hour...why
are they paying so much? Why are they screwing up
the market? I don’t understand it.”
Machinery
“There is lots of machinery that we could use to
upgrade. Our drill press is pretty ancient. We need an
adjustable table on our drill press...we spend a lot of
extra time horsing around...we don’t even have a lineboring machine. We should have a line-boring machine.
I mean that’s the machine that we need to have. It’s not
like we can pay a lot of money for them or anything. It
would help us be more efficient. It would save a little
bit of wear and tear manually on tools and the person
doing the job.”
“It seems like we never have enough machinery, or
enough guys, or enough good weather to get all the
logs we need.”
Raw materials
(mostly in the
Alaska companies)
“The Alaskan birch we have here is paper birch, it’s
terrible stuff...there’s at least 50 percent waste right off
the get go...I would be willing to pay more money for
the material if the material was worthy of that. Instead
of having this broad range, every time you got an order
41
GENERAL TECHNICAL REPORT PNW-629
you would get an order of clear, straight-grained material...because we spend a lot of time sorting through
that; we sort through those materials.”
“[Consumers in the Lower 48 States] want the clear,
white wood. Eight percent of what you do is all
you’re going to get of clear, white wood. That’s on a
good day. So you’re going to have to cut how many
millions of feet to get one million feet of clear, white
wood. It’s just stupid to even think that way.”
Drying capacity
(mostly in the
Alaska companies)
“We have a furnace room that we put stuff in and stack
it up in there but it’s not very big. The furnace is going,
in the wintertime it’s going pretty much all the time...It’s
not efficient...If we got any busier quite often we have
to schedule things further down the road just to wait
for materials to dry. So drying of materials is a biggie.”
“I haven’t been able to keep up with the demand on
some things. The kiln doesn’t hold enough volume.
I’m at a point where I’m maxed out here as far as how
much wood I can get through here.”
Supply
“I’ve never gone out there and tried to [aggressively]
sell myself because I was always worried about the
supply...The worst thing you can do is promise somebody something and then not deliver it. That’s terrible.
You’ve not only shot yourself in the foot with that
person, but you’ve shot yourself in the foot with every
person that that person knows.”
“There’s the supply problem of...the environmental
groups constantly [taking] away the supply...whether
there is going to be logs or not. That creates uncertainty
among someone who is going to go ahead and try to
do the logging end of it....If I can have that supply
there where I didn’t have to worry about it...I could
focus my time and energy into the business aspect of
it, instead of the political aspect.”
42
Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
“One of the constraints would be wood fiber...just
being able to get enough domestic wood for the
process and stay competitive.”
Cash flow
“Being undercapitalized is a problem for most small
businesses. The bank is not going to lend you a bunch
of money because you don’t have anything.”
“Cash...cash and also manpower. But manpower is
tied to cash. If you had the cash you could hire the
qualified people that you need.”
“There started to become a market. It was more [a
matter of] no money in it. We had to come up with
money to cut it. We had to come up with the money to
dry it. We had to sit on it until it sold...If you sit on it
too long it cracks and splits.”
Market
“What’s our biggest stumbling block? I always say
market because they’ll say, ‘Is it supply?’ ‘Is it financial?’ It’s not...because if the market is there, the rest
just falls into place.”
“One of the challenges we’re faced with is the byproduct. Right now we’re faced with chips, getting rid
of our chips.”
Limitations
This research was conducted with a small sample of forest products companies in
Alaska and Oregon. The sample was not randomly chosen; therefore no inferences
can be drawn for the larger population of forest products companies in either state
or on a nationwide basis. The results presented in this paper are limited to those
companies interviewed and represent their opinions and ideas about the topics
explored.
Conclusion
Because there is a lack of innovation research in the forest products industry, this
study attempted to fill that void by examining innovation through various concepts. Interviews with innovative forest products companies in Alaska and Oregon
revealed several aspects of innovation in the forest products industry.
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GENERAL TECHNICAL REPORT PNW-629
Product focus—These results can be summarized into two groups: product innovation and production innovation. Many companies stated that their innovative
advantage lies in the production process rather than the product itself.
Competitive advantage—Innovative companies draw on a variety of competitive
advantages in order to survive in the forest products industry. These include flexibility, adding value to the product, material characteristics, and environmental
sensitivity.
Customer focus—Customer focus was found to be a major source of innovation.
Companies found that customer focus leads to improved products, repeat purchases,
and new product ideas.
Management—Innovative companies differ in the type of management structure
they implement. The most effective structure seems to be one that has clear leadership and allows ideas to be transferred through two-way communication.
Organization—In small companies, organization culture tends to mirror the proprietor, whereas in larger companies culture is influenced by a variety of working
environments.
Planning and information systems—Respondents had very little experience with
planning and information systems.
Marketing communications—The major marketing tools used by respondents
were product displays, print ads, word of mouth, tradeshows, and the Internet.
Many companies stated that word of mouth was the most important venue for
finding new customers.
Market information—A majority of these innovative companies did not engage in
formal market research because of the lack of time and money. Rather they relied
on informal methods such as field visits, books, magazines, and conferences.
Product planning—The results showed that innovation sometimes is the result of
planning and execution. However, often innovation is a natural progression influenced by gut feelings, being at the right place at the right time, accidents, and luck.
The innovation process is a combination of semiformal development stages,
trial and error, intuition, and luck. A variety of factors constrain companies from
being more innovative including government regulations, shipping and labor costs,
lack of cash flow, raw material characteristics, marketing expertise, and supply.
44
Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
Offering producers the chance to exchange ideas and network is the most valuable
resource available.
The innovation environments in Alaska and Oregon are somewhat similar,
yet different in the marketing tactics employed and the techniques used to obtain
market information. Furthermore, the type of development projects that each
region focuses on differs, as does the actual process used to develop innovative
projects.
Future research should focus on completing a quantitative component to this
study, developing short courses or 1-day seminars, identifying factors that contribute to innovation success and failure, investigating why the forest products
industry is not innovative by nature, and exploring the external acquisition of
innovation.
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48
ed. Thousand Oaks,
Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
Appendix: Previous Research
Studies that examine innovation in the forest products industry are few and far
between. However, there have been several noteworthy studies over the last 15
years. Calantone et al. (1995) completed one of the few product development
studies in the forest products industry.
These researchers attempted to find a link between performance of certain
innovative activities and business performance in the furniture industry. They evaluated eight product development activities (discussed in 2.1.1.) for their effect on
six business performance measures:
• Return on investment (ROI)
• ROI growth
• Return on sales (ROS)
• ROS growth
• Market share
• Market share growth
Their results show that:
• Top-performing companies place a greater emphasis on innovative activities
than do other companies.
• Innovative activities have a strong positive influence on ROI and ROI growth.
• Most innovative activities are related to increases in all performance measures.
• Overall company performance is linked to excellence in innovative activities.
Other research in the furniture industry was recently completed by Bumgardner,
et al. (2000) in their investigation of product development and marketing issues
surrounding character-marked furniture. Through the use of interview-based case
studies, they examined the influence of designers, retailers, and product design on
the successful development and marketing of character-marked furniture. They
found that retailers are persuaded to buy from manufacturers with a reputation for
“design proactiveness.”
In another study involving the furniture industry, determinant attribute analysis
was used to determine which physical characteristics of furniture are most important in a consumer’s purchase decision (Trinka et al. 1992). These results were in
turn used to develop products that fit the needs of consumers, thereby creating a
competitive advantage in the marketplace.
More recently, Cohen was involved in a study of technology in sawmills (Lee
et al. 1999). This study focused on the interrelationships among innovation, quality
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GENERAL TECHNICAL REPORT PNW-629
control, and markets. They found that markets have a dramatic influence on innovation because they dictate a manufacturer’s ability to survive and sell products.
Finally, Nystrom (1985) completed case histories of 14 new products developed by 4 pulp and paper companies in the 1970s. In his research, Nystrom distinguishes between what he terms an “open strategy”and a “closed strategy” to both
the technology and the marketing environments. These differences are shown in
table 4. In his research of several industries over a 10-year period, Nystrom found
that companies that pursue a more open strategy, both in technology and marketing
environments, are more likely to be successful in product development.
Table 4—Open strategy vs. closed strategy
Technology orientation
Technology use
Product line focus
Customer focus
Product design
Process design
Open strategy: creative
potential for changing,
uncertain environments
Closed strategy: focus
for efficiency in stable
environments
External to firm
Interdisciplinary
Diversification
New
General needs
General production
Internal in firm
Intradisciplinary
Modification
Existing
Specific needs
Specific production
The Forest Products Industry in Alaska and Oregon
Size
Parrent (2000) listed over 160 Alaska companies in the secondary forest products
sector, most of them small operations (usually fewer than 5 employees). Companies
listed in this directory focus on a variety of products including house logs, prefabricated buildings, furniture, certified “Made in Alaska” products, artwork, carvings,
bowls and utensils, musical instruments, molding, cabinets, craft products, and
other specialty items. These smaller secondary companies also abound in Oregon.
As of June 2000, approximately 130 companies were listed as primary producers in Alaska (Parrent 2000). These companies mainly concentrate on manufacturing lumber, cants, railroad ties, siding, decking, shingles, and timbers. However,
the average Alaska sawmill operates one shift a day, 150 days a year, and has only
seven employees (Laufenberg and Brady 2000). This is in stark contrast to the
larger producers in Oregon and Washington who operate 24 hours a day, 365 days
a year, and with thousands of employees.
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Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
As a result, the majority of research to date is focused on the secondary sector
of the industry. It would be too difficult to compare the primary industry across
regions because of the large fundamental differences.
Market Access and Competition
Because Alaska markets are small and the cost of transportation within Alaska is
extremely high, most of Alaska’s wood products are exported to the Lower 48 States
or to overseas markets, especially to Japan (Wurtz and Gasbarro 1996). However,
access to markets in the Lower 48 States is difficult for Alaska because of the
remoteness of most producers and the constraints of shipping products on barges.
In contrast, Oregon producers have access to trucking and rail corridors and therefore much greater market assess within the United States.
The domestic market within Alaska is relatively small and insufficient to solely
support the industry. However, a local forest products market exists in Oregon and
the surrounding Pacific Northwest (PNW) region.
Recently, Alaska forest products producers have received more competition
from European (primarily Scandinavian), Canadian, and Pacific Northwest companies (Brooks and Haynes 1997). The Oregon industry has received more competition from Scandinavia, Canada, New Zealand, and South America.
Supply
The Alaska industry is also complicated by a decreasing supply of commercial
timberlands. As of 1994, 1.7 million acres of commercial forest land existed in the
Tongass National Forest of southeast Alaska, the largest timber base in the state.
This acreage had decreased from 6.4 million owing to the reclassification of lands
and transfers to private, Native corporations (Wurtz and Gasbarro 1996).
This decreased timber supply has placed constraints on forest products companies and will force the industry to consolidate and use a shrinking resource in a
more efficient manner. In a study completed by Rule and O’Laughlin (1990), one
panelist reported that “Alaska’s timber industry needs innovative planning, management, and investment to properly utilize the resource.”
The supply of timberlands in Oregon, at least on public lands, has been similarly scarce throughout the last decade. However, the larger Oregon primary producers have been able to stay afloat through their private timber holdings. Alaska
producers, those in southeastern Alaska in particular, do not have this luxury as
nearly all the harvestable timberland is in government hands.
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GENERAL TECHNICAL REPORT PNW-629
Costs
A recent report produced by the Center for Industrial Trade and Forest Products
Marketing at University of Washington compares the primary producers in the
PNW (Oregon, Washington, and British Columbia) to those in Alaska (Braden et
al. 2000). From table 5, it is apparent that Alaska producers will have difficulty
competing in the primary wood processing industry when shipping to
the Lower 48 States.
These higher production and shipping costs along with size, market, competition, and supply factors are all unfavorable for the primary forest products industry
in Alaska. In fact, lumber shipments from Alaska to Japan decreased by nearly 90
percent from 1990 to 1996 (Brooks and Haynes 1997). This also is due, in part, to
newer products (i.e., laminated veneer lumber and other engineered wood products)
that have received increased acceptance in Japanese markets and have contributed
to the decline of Alaska lumber producers’ competitive position in international
markets. Consequently, more emphasis is now being placed on developing Alaska’s
secondary forest products industry.
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Innovation in the Forest Products Industry: an Analysis of Companies in Alaska and Oregon
Table 5—Producers in PNW (Oregon, Washington, and British Columbia) compared to
producers in Alaska
Percentage of manufacturing
costs in the cost of lumber
Labor costs
Number of employees in
an average sawmill
Harvesting costs
Processing technology
Manufacturing costs
Alaska
PNW
50%
21%-27%
65% higher than the PNW
Half employ fewer than
four people
High due to high labor, fuel,
and transportation costs, as
well as minimal road
infrastructure
Low
High due to smaller
economies of scale
Competitive advantage
High-quality wood
Transportation
Shipped by barge to Lower
48 States
9.8 cents per kilowatt hour
Energy costs in 1995
Domestic market
Cost to produce 1,000 board
feet of lumber in 1995
Very small
$370
Usually 100 or more
High
Lower due to gains in
efficiency, processing
technology, and
infrastructure
improvements
Efficiencies in harvesting
and manufacturing
Shipped by truck and rail
throughout the United States
3.25 cents per kilowatt
hour; more cogeneration
plants
Large
$170
Source: Braden et al. 2000.
53
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